The best indicator for swing trading is a technical indicator (aka a signal and a correlation that tells you how much to sell or buy), or even what traders call a simple moving average.
Simple moving averages are based on the average of a set of data points over a few standard days and offer traders a way to make quick money when they know they are making a wrong move because there are more recent higher and lower data points for the same price point.
When the SMA moves below a fundamental trend line or other indicator indicating a market bottom, we call a trend reversal, as shown below.
Simple moving averages are also important in other ways, such as when market watchers look for a buy or sell signal. They mean traders can sell a few shares or call a sell call with a good margin. And since buying and selling are two separate actions, the simple move means there must be something to sell to make money (i.e. some downside in stock price) for these traders.
What is different about the SMA from a basic moving average?
The SMA is a simple moving average indicator, which means it only measures the movement over the past five or 10 consecutive days instead of the average over the previous 30 or 60 days. The SMA can move in either direction, which is very helpful in assessing the risk of buy or sell signals.
This is why stock market traders often use a basic moving average to measure the market’s trend lines during a bull market and another move during a bear market. There is one important difference between the two. The SMA measure the market’s past day movements, whereas a basic moving average means the move is the average over the previous month and year. Here’s an example of a basic moving average vs. an SMA, but see what happens when the SMA moves off the trend line.
In this example, an SMA above trendline signals the market is going to go down. In this example, we are going to call the SMA on the up market.
A technical indicator (aka a signal and a correlation that tells you how much to sell or buy), or even what traders call a simple moving average. (Photo: Getty Images/iStockphoto) A technical indicator (aka a signal and a correlation that tells you how much to sell or buy), or even what traders call a simple moving average. (Photo: Getty Images/iStockphoto)
How can I find a technical indicator
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